Gold futures rise for fourth day

Precious metal higher as PPI hints at U.S. inflation

SAN FRANCISCO (CBS.MW) -- Gold futures rose for a fourth day Thursday to close above $411 an ounce, the loftiest level in a month, after a key U.S. economic report hinted at inflation.

"At the end of the day, after all the currency and terrorism arguments, inflation was, is and always will be, the main factor on whether to own gold or not," said Peter Grandich, editor of The Grandich Letter.

Gold for April delivery traded as high as $414.40 an ounce on the New York Mercantile Exchange, before closing at $411.30 an ounce, up $4.20. It was the highest closing level for futures since Feb. 18.

April gold has now climbed nearly $16 in the past four sessions.

The producer price index reading for January, released earlier Thursday, "suggests the days of low inflation are behind us," said Grandich. "But that shouldn't be hard to figure out with oil at $38, and commodities across the board in major up trends." See Futures Movers.

The nation's prices at the wholesale level rose 0.6 percent in January as energy prices jumped 4.7 percent, the Labor Department said. See Economic Report.

The data suggest inflation, and "gold in the past has been a traditional investment vehicle to hedge against inflation," said John Person, head financial analyst at Infinity Brokerage Services.

Also, gold's strength Wednesday without the benefit of a "substantially rising euro clearly indicates that the gold market has gone into a more broad-based move with fears of inflation likely to be its main rallying point," said Grandich.

Moreover, a declining U.S. dollar "can only bolster that argument," he said.

In currency trading, the U.S. dollar changed hands at a one-month low against the Japanese yen amid continued speculation that Japanese monetary authorities have walked away from dollar-buying intervention. See Currencies Report.

Commodity signals

Historically, higher energy prices and the overall increase in base commodity prices are a "positive factor for gold," said Person.

This much was borne out by the action in the Reuters/CRB index, a benchmark indicator for commodities that reached a high of 283.1 on Thursday -- an all-time record since its inception in 1986.

The uptrend in gold will likely continue for the next few months, Person said. He expects gold futures to reach $450, then $75 by mid summer.

Batting down the hatches

Gold also found support in the last several sessions from stepped-up terrorist attacks in Iraq and elsewhere, including last Thursday's train bombings in Madrid.

"Given al-Qaida's penchant for anniversaries, and the increased tenor of the terrorist activity as we approach Saturday's one-year anniversary of first action in the Iraq war, nervous investors are turning to gold as a safe haven," said Brien Lundin, editor of The Gold Newsletter.

Overall, "the long-term trend remains solidly up for gold, thanks to a multitude of factors combining to pressure the dollar," he said.

But, he warned, "if we don't see some monetary factors coming in to support gold's rise, we will see a price correction come into play."

Mining indexes climb

On Thursday, metals mining shares took their cue from the sharp climb in gold futures.

But gold needs to prove that longer-term monetary moves -- not short-term, geopolitical events -- are behind its moves higher, said Lundin. Until then, mining stock investors, for the most part, will "remain reluctant to jump back into the market head first," he said.

Tracking the sector as a whole Thursday, the Philadelphia Gold & Silver Index
XAU, +1.49%
climbed by 2.1 percent to close at 101.9. Its intraday high of 102.65 is a one-month high.

The CBOE Gold Index
$GOX
also tacked on 2 percent to close at 87.01 and the Amex Gold Bugs Index
HUI, +1.38%
gained to 228.36, up 3.3 percent. Both indexes are trading at their highest levels in a week.

Silver, copper move higher

Back on Nymex, silver and copper futures resumed their ascent after ending Wednesday's session on a mixed note.

James Moore, an analyst at TheBullionDesk.com in London, said $7.40 an ounce is the next upside target for silver, with "stronger gold, base metals and weaker dollar all suggesting a test higher in the coming sessions."

May silver rose 20.5 cents to close at $7.465 per ounce, with prices at their highest levels in at least six years. May copper rose by 2.05 cents to end at $1.371 per pound.

On the supply end, copper supplies were down 1,384 short tons at 228,172 short tons as of late Wednesday, according to Nymex. Silver stocks were down 294,290 troy ounces at 122.2 million troy ounces.

Gold inventories stood at 3.57 million troy ounces, down 596 troy ounces from the previous session.

June palladium climbed by $6.65 to $281.95 an ounce. But the April contract for sister metal platinum fell back to $898.70 an ounce, down $8.10.

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